I decided to switch to Vonage a few months ago to pocket some change from incentives and a lower monthly fee than Qwest. We call family in California pretty regularly so the flat rate pricing is a nice feature for us. Porting our phone number only took a week and I ended up with the first month free (which is a wash with the activation fee), a free VOIP gateway device, saved $15-20 a month over Qwest and got $200 to spend at Circuit City. I love paying less for phone service we barely use, and I spent the $200 on a Nintendo Wii for Christmas (yes, my kids love it and Wii Sports is HOT!).

It works really well for our phone setup where we have a central wireless base station and several wireless handsets around the house. I just plug the wireless base into the Vonage VOIP gateway (mine is made by Linksys) and I’m good to go with all the phones in the house.

Vonage has been working great. We get service equivalent to what we had before and it’s got a couple nice features. I particularly like that I get emails when someone leaves a voice mail. I even have it set up to send me a .wav file of the message so I can listen to it on my computer. Since I use Google Apps, I can listen to my voice mail anywhere. It’s annoying to me that their web site offers the same WAV files for download when they really should just embed a flash player in the voicemail page so you can play them directly and delete them, forward, etc. on the web. In these days of YouTube and all, it’s hard to swallow the inconvenience of downloading a file, opening another app to play it, then going back to the web to delete the message. Really makes me lust after Visual Voicemail in the upcoming iPhone.

I should mention that it does work a lot smoother on my Mac though. When I click on a voicemail recording, it opens in QuickTime player automatically and I simply press the spacebar to begin playing. On my Windows machine, it opens in iTunes, sometimes doesn’t play the audio correctly, and of course iTunes copies it into my music library so I have to delete the file when I’m done in TWO places (iTunes and the web). I tried tweaking the settings to have the WAV file play in Media Center, but there’s a huge delay in opening that beast of a program. QuickTime Player jumps to life on my Mac when I need it.

The only limitation that I’ve run into is that Vonage is sensitive to having enough bandwidth to carry the voice conversation. If I’m going mad on bittorrent, then I have to limit the upload speed to 10-15KBps (my line has about 40KBps) to avoid sending garbled sound quality to the other party. What I really need to do is look into priority queuing and traffic shaping for my Cisco router so it will automatically give the Vonage traffic priority over other outgoing traffic. Incoming traffic isn’t as much of a problem because the cable line has pretty good download speeds. The other side of the conversation is always crystal clear, which makes it hard to remember to shut down Azureus so the other person can hear me.

I’m locked in for another 7 months or so but I’m not counting the days down to jump ship (which is a pretty good compliment for something as mundane as phone service). I’ll probably look around at incentives to try Comcast’s service or go back to Qwest. But one thing is for sure – I’m done paying $45+ per month for my home phone and long distance.

There’s been some discussion in the blogosphere about the lack of VOIP features on the iPhone when it has WiFi built-in. I suppose the iPhone is more than capable of running a Skype client (or similar software) but I would say that VOIP is never going to happen on the iPhone for the next 5 years.

Why?, you ask. Well, because that’s the term of Apple’s exclusive agreement with AT&T (nee Cingular). I have a little insight into the issue because AT&T Wireless was a client of mine, once upon a time. This was before they were acquired by merged with Cingular. At the time, AT&T Wireless spent over $1 Billion every year just to maintain their wired network connecting all of their cell site towers (which is why they hired me and a small team to try and figure out how to save 5-10% on network costs). It’s a hidden cost, but each cell tower requires backhaul to the network backbone which is usually accomplished with leased lines like T1’s and T3’s. Sometimes microwave is used, but this is more rare. This $1B+ number didn’t necessarily include all the capex money going into improving the network for 3G services. When we look at the new AT&T, these numbers get even bigger.

When you give a CEO a fixed cost in the billions to operate a network, he’s going to want to find ways to pay for that. The value proposition for wireless carriers is largely based on the coverage of their network and the services provided by that network (hence those “can you hear me now?” and “raise the bar” commercials). There used to be value tied to the number but wireless number portability (I also did consulting work on WNP) changed that significantly (to the benefit of consumers). But today, the carriers compete based on coverage, data services, and plan pricing.

If AT&T allowed the iPhone to use a Skype client that would discourage people from using the network that they spend billions to operate, you would choose a cheaper voice plan with fewer minutes in that scenario. Their ARPU (average revenue per user) would go down and their stock price would tank.

But I think there is still an opportunity here and that AT&T should actually embrace the VOIP trend. The key here is that 21st century carriers can turn the value proposition around and make the phone number valuable again. What they need to do is integrate your wireless number with VOIP services so that you can bounce back and forth from 3G, GSM, and WiFi networks while always being accessible at your personal number. This requires a significant amount of engineering in the handsets and throughout the network (both in the backbone and out at the nodes) to enable seemless network hopping. Still, if AT&T would integrate their wireless service with their inherited VOIP service (from the pre-SBC AT&T) they could offer customers the best of both worlds. Cheap calls when in range of WiFi and great coverage when travelling or driving down the road.

Still, when you have are spending billions every year, it’s scary to look at technologies that could disrupt your business. But I think that this is an opportunity for AT&T to actually develop stronger relationships with their customers by offering choice and flexibility. They just need to come up with a way to bill for VOIP usage (at a much lower rate) and have it appear on your regular phone bill.

I can’t help myself from making one more industry insider comment. Most suprisingly to those outside of the telecom industry, modifying the billing systems is usually the hardest part in offering new services.